Archive for February, 2016

We have previously discussed the DOL’s decision to narrow the definition of “independent contractor” so that more workers can be deemed “employees” and thus subject to federal wage and hour laws. On a similar theme, the DOL’s Wage and Hour Division recently issued an Administrator’s Interpretation, in which it seeks to expand the concept of “joint employment” under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA). This expansion is significant because, under the FLSA and MSPA, when a non-exempt employee is jointly employed by one or more employers, the weekly hours worked for each employer are aggregated for determining when overtime is due. And each joint employer is individually responsible for all wages due that employee. For this reason, it is important for businesses to have a clear understanding of the concept of “joint employment” and whether it applies to them.

The Administrator’s Interpretation announces that the DOL will target two general types of joint employment: horizontal joint employment and vertical joint employment.

Horizontal joint employment is when two or more employers each separately employ a worker, and these employers are sufficiently related to each other with respect to that worker. The focus is on the relationship between the employers. For example, if two separate home healthcare providers have common management and share some staff, they may be joint employers of any employee who works for both companies. Similarly, if farmworkers pick produce at two separate orchards, and the growers of those orchards have an arrangement to share farmworkers, then both growers may be joint employers of those farmworkers.

Vertical joint employment, on the other hand, exists when an employee formally works for one employer but his job is economically dependent on a separate company or entity. For instance, when a staffing agency provides nurses to a hospital that then supervises and directs those nurses, both the staffing agency and the hospital may be joint employers of those nurses. The focus here is on the “economic realities” of the employment relationship, i.e., whether the nurses are economically dependent on the hospital even though it is not formally their employer.

Because joint employers are each individually responsible for all of their employees’ wages, the consequences of misunderstanding could be costly. For example, if a farmworker in the example above worked 25 hours in a week at one orchard, and another 25 hours that same week at the other orchard, and if the growers of both orchards were found to be joint employers, then the farmworker’s hours may be aggregated for the week, entitling him to 10 hours of overtime. But if each grower instead paid the farmworker only for the 25 hours he worked at the straight-time rate, he would be missing the extra half-time rate for the 10 hours over 40 that he worked. Under the Administrator’s Interpretation, either grower could be held fully liable for those 10 hours of unpaid overtime. (Of course, the farmworker would not be entitled to collect the full amount from each grower; that would be a double recovery.)

In light of the DOL’s new guidance on joint employment, employers should review their labor arrangements to be sure they are compliant with the FLSA and MSPA. If the examples used in the Administrator’s Interpretation give any indication, staffing agencies and employers in the construction, agriculture, warehouse, hospitality, and home healthcare industries may have particular cause for alarm.

On January 25, 2016, researchers at Harvard University and The University of Illinois Urbana-Champaign detailed their creation of “4D-Printed” structures –made by mimicking the way orchids and other plants move and twist – that could ultimately lead to advances in the way medical devices are created both in the United States and abroad. For instance, scientists are working to create 4D-printed robotic tools that move and bend in order to assist in surgeries. 3D Printing, also known as additive manufacturing, is already being used to revolutionize the healthcare industry through the creation of things such as prosthetic devices.

As technology continues to advance, the effect that this emerging technology will have on traditional theories of products liability remains unseen. For example, in the products liability realm, the persons or entities responsible for injuries or damage caused by a defective medical device are typically those who manufactured or sold the defective product. Because of the nature of 3D printing, however, there is a challenge in determining who should be held liable. The manufacturer of the 3D printer itself, the software designer or CAD developer who assist in developing the code that is fed into the 3D printer in order to create the product, and the doctors and hospitals who own and use the 3D printer, are all potential candidates. Under existing law, however, there are potential pitfalls to an injured plaintiff seeking to hold any of these individuals or entities liable. A more thorough analysis of these issues can be found in “3-D Printing of Medical Devices,” DRI Magazine, September 2015, available here. Additionally, our lawyers are available to assist you in taking steps to minimize the potential risks and liability associated with the use of this technology.

The Georgia Court of Appeals recently held that a municipality may be subject to sanctions for failure to preserve audio recordings of a police pursuit when the recordings were destroyed in the ordinary course of business before it received ante litem notice or other actual notice of contemplated litigation.

Last year we reported here about Phillips v. Harmon, in which the Supreme Court of Georgia held that the duty to preserve evidence may be triggered by a party’s constructive notice of pending or contemplated litigation. The ruling marked a significant expansion from the previous rule, which required actual notice (such as a spoliation letter, letter of representation or ante litem notice) to trigger the duty. We expressed concern that in the wake of Phillips, plaintiffs would begin to seek sanctions for spoliation based upon failure to preserve evidence when a defendant “should have” known a lawsuit was coming, and that defendants with relatively short record retention periods for audio or video recordings would be particularly vulnerable to these claims. A recent ruling by a full panel of the Georgia Court of Appeals seems to validate those concerns.

In Loehle v. Georgia Department of Public Safety, 334 Ga. App. 836 (2015), plaintiffs filed suit against the Georgia Department of Public Safety and the City of Atlanta after they were injured by suspected carjackers fleeing from police. According to the opinion, Atlanta failed to preserve audio recordings related to the pursuit, destroying them pursuant to its customary retention period after about 120 days, prior to the receipt of ante litem notice. The trial court held, applying pre-Phillips law, that Atlanta’s failure to preserve the recordings did not constitute spoliation because when the recording were destroyed, the city lacked actual notice that the plaintiffs were contemplating suit. The Georgia Court of Appeals held, 6-1, that the trial court applied the wrong legal standard, vacated the trial court’s ruling as to spoliation, and remanded for re-consideration under the standard set forth in Phillips. The sole dissenter, Judge Andrews, would have affirmed the trial court’s ruling because the plaintiffs did not make or preserve “constructive notice” arguments as to the spoliation issue before filing their appeal.

Strategically, the Loehle ruling emphasizes the importance of prompt and thorough investigation of potential claims, even in the absence of a preservation request. Companies with relatively short retention policies (30, 60, or 90 days), particularly regarding audio and video-recordings, may want to re-examine their current policies and consider involving counsel early in pre-suit investigations.

A petition for certiorari has been filed to the Supreme Court of Georgia; we will monitor the case and report on future developments.

A class action lawsuit has been filed against the fast food chain Wendy’s claiming it failed to adequately safeguard customer payment and other personally identifiable information (“PII”). The lawsuit also alleges that Wendy’s failed to timely and adequately notify Plaintiff regarding the breach and precise nature of PII involved.

On January 27, 2016, Wendy’s announced that it discovered malicious software, or malware, designed to steal customer payment data, on computers that operate the payment processing system. In Torres v. The Wendy’s Company, filed February 8, 2016 in the Middle District of Florida, plaintiff Jonathan Torres alleges that Wendy’s failed to provide sufficient security measures, allowing hackers to steal his payment card information (“PCI”) and fraudulently charge nearly $600 worth of purchases at other retailers. Plaintiff also alleges breach of contract and violations of the Florida Unfair and Deceptive Trade Practices Act.

The basis of the complaint is that Wendy’s violated its obligation to abide by industry standards and best practices in protecting its customer’s PII. Additionally, the complaint alleges that Wendy’s failed to timely and adequately notify customers that the breach may have affected their PII or PCI, preventing customers to fully understand the scope of the breach and their ability to protect themselves from potential harm. The lawsuit further alleges that Wendy’s should have implemented better security measures. This suit is one of the first to directly target a retailer for failing to implement new industry standards regarding payment card transactions.

Major credit card vendors are transitioning to new, more secure chip card technology, referred to as EMV. EMV cards have an embedded microprocessor chip that creates a dynamic authentication code for each transaction. Unlike credit cards, which use a magnetic strip to store PCI, EMV cards employ a code that is unique to each transaction and cannot be used more than once. Under the current zero-liability regulations, the card issuers are responsible for losses due to fraud. Effective October 1, 2015, merchants are now liable for: (1) failing to update POS terminals to EMV chip-enabled technology; (2) accepting a counterfeit magnetic strip card; (3) conducting “fallback transactions;” and (4) accepting a lost or stolen card. This liability shift was developed as an incentive for both merchants and card issuers to increase card security and reduce counterfeit fraud.

In the wake of mass data breaches by other retailers, it is critical that merchants understand the implications of the liability shift regarding non-compliance with EMV technology standards. As Wendy’s is now aware, a failure to employ industry standards and best practices may lead to significant exposure.

Imagine having title for decades to prime undeveloped lake-front property that is buildable in all respects, but the land use ordinance forbids building on it and “Takings” law says the government does not have to compensate you for it. This is what happened to the Murr family in Wisconsin. In 1959, when the lot was created, it complied with the land use laws. Mr. Murr purchased the lot and the lot adjacent to it, and built a lake house on the adjacent lot that the family enjoyed for decades. The vacant lot (Lot E) was titled in Mr. Murr’s plumbing business and the lake house lot (Lot F) was titled in Mr. Murr’s name. Eventually, the two lots were re-titled in the name of the Murr family siblings.

In 1975, the county adopted new development regulations that when applied to Lot E, meant the lot was not legally buildable. Despite this, a grandfather clause would allow the lot to still be developed. However, this clause only applied if the lot “is in separate ownership from abutting lands.” Since the Murr siblings owned both lots, they could not take advantage of the grandfather clause. The ordinance also precluded the Murrs from selling Lot E to anyone else unless it combined it with Lot F. The Murrs sought a variance to allow them to use Lot E as a separate building site arguing that the grandfather clause should apply because when the 1975 regulation was adopted, the two lots were under separate ownership. But the county and the Wisconsin state courts rejected this interpretation.

The Murrs filed suit alleging an uncompensated taking of Lot E. They contended that without the ability to sell or develop the lot, it is rendered economically useless, similar to that which occurred in Lucas v. South Carolina Coastal Council, 505 U.S. 1003 (1992), a case where the Supreme Court held that a South Carolina state law as applied to two beach front lots rendered the lots economically valueless requiring compensation. The Wisconsin Court of Appeals rejected the Murr’s claim by defining the relevant parcel as not just Lot E, but also Lot F. Thus, the only reason the claim was rejected was because the Murr family siblings owned the adjacent parcel. Since the two lots were contiguous and happened to be owned by the same people, the Supreme Court’s “parcel as a whole” rule from Penn Central Transp. Co. v. New York City, 438 U.S. 104, 130-31 (1978) required combining the parcels for purposes of valuing the claim from a “Takings” perspective.

The “parcel as a whole rule” means that in valuing a property interest in a regulatory takings case (a case where the application of a statute or rule to a property interest makes that interest less valuable in some respect), the court does not separate out distinct property interests. If the property viewed “as a whole” has value, then there is no regulatory taking and therefore, no compensation despite the application of the regulation to the property. This rule has been applied in various factual context like a “air rights” at an airport, a temporary interest, commercial transactions, and pillars of coal; however, never before has this concept been analyzed within the factual context of a fee simple interest in land by individuals involving traditional parcels of common residential lots.

The relevant parcel from the Murr’s perspective is Lot E. The lot was held by their parents for decades as an investment and eventually deeded to the six Murr siblings as gift, along with Lot F, also a gift. When the investment ripened, the plan was to develop Lot E separately from Lot F or sell it to a third party. The relevant parcel from a “Takings” perspective is not just Lot E, but Lot E and Lot F combined. This “defining of the relevant parcel” business was central to the Wisconsin court’s decision that there was no regulatory taking at all. Applying the “parcel as a whole” rule to the two lots, it was very easy for the Wisconsin court to find no taking as a matter of law, as the Wisconsin court stated: “[T]he Murr’s property, viewed as a whole, retains beneficial and practical use as a residential lot.”

Of interest will be how the Supreme Court applies the “parcel as whole” concept to this regulatory takings claim. A conservative bench is more likely to view the relevant parcel like the Murrs do – separate in and of itself and requiring compensation to the extent the local laws will not allow the Murrs to build on it. A more liberal bench is more likely to view the relevant parcel as the State of Wisconsin does – bundled with the other parcel and not requiring compensation to the extent the local laws allow at least one lake house on property commonly owned. With Justice Scalia no longer on the bench and the parties finishing briefing by mid-June of 2016, it is difficult to predict how the Murrs will fare, especially if an opinion is entered before the swearing in of a ninth Justice. This is one to watch.

For questions or for additional information, please contact Coleen Hosack at [email protected].